Israel has already conducted a pilot test of a digital shekel cryptocurrency, Bank of Israel Deputy Governor Andrew Abir said, perhaps inadvertently, at a recent conference of the Fair Value Forum of IDC Herzliya.
Toward the end of a panel discussion, Abir said the Bank of Israel had already run a digital currency pilot. Another member of the panel seemed surprised and asked: “You have already issued a coin?” Abir responded in the affirmative.
However, Abir said he was not optimistic that such a central-bank digital currency (CBDC) would ever be launched.
“I had previously estimated that the chance of having a CBDC within five years is 20%,” Abir said. “My estimate has increased a bit in the last year, mainly because other countries are advancing with it too. But still there is less than a 50% chance.”
In May, the Bank of Israel said it was preparing an action plan for how it could offer a digital currency. The concept of issuing such a currency has been in discussion since 2017, but it decided to accelerate its research and preparation for the potential issuance “in view of the rapid developments in the digital economy and in payments, and in view of the major central banks’ work on the issue.”
A CBDC would rely on distributed ledger technologies such as blockchain, but it would be different from the cryptocurrencies that are popular today, including bitcoin. The most important difference is that while cryptocurrencies do not belong to any specific country, and some are characterized by having no central authority to manage them, a CBDC issued by a country’s central bank would be regulated by the relevant state authorities.
“The option for a CBDC is still being examined, and when we made our statement last month, it was not to say what we are doing, but rather to share what we do not know and receive feedback from the public,” Abir said.
In recent years, there have been significant and very rapid changes in the payments market in Israel and abroad. While no central bank in an advanced economy has yet announced a decision to initiate a project that would lead to its issuing a digital currency, there has recently been an apparent change in global sentiment on the matter, and the central banks in a number of major world economies have begun exploring the possibility of issuing a CBDC alongside existing means of payment.
The Bank of Israel is most concerned about staying on top of emerging global trends, Abir said.